Why Performance Based Budgeting Fails

In a recent front-page article in the Ottawa Citizen, Treasury Board president Tony Clement is quoted as saying “We have to ingrain the idea of efficient and constrained use of tax dollars on a day to day basis at every level from the politician all the way down to the proverbial mail clerk”.

This will involve a culture shift from “spending enablers to cost containment”, and buy-in to this goal will be generated with 'incentives and awards'.

This is a more fundamental and sweeping change than mere Rationalization What he's talking about is performance based budgeting (PBB). But here's the rub; if you start out on the path to PBB with the emphasis on cost constraint, you are unlikely to create a truly effective service organization.

The correct starting place is on outcomes; i.e. the intended impacts, benefits and consequences of your program activity. Of course, the costs to achieve those outcomes must still be subject to scrutiny.

And, this process can't begin until a robust, practical, outcomes-driven performance measurement system has been established. Note, in an organization of any size or complexity, this DOES NOT HAPPEN in one year.

I've written before that many government performance measures suck (IMHO ;-). And also about some of the common performance measurement gaps we have observed.

But here's one of the biggest road-blocks to efficient delivery of service; we have observed very few government organizations that can quantify 'cost per unit of service'. So how do you choose least-cost channel of service delivery if you don't know what any of them cost?

Here's another big danger, this one related to the 'incentives and awards' idea; performance based budgeting (and indeed performance measurement) is best used as a management tool for program/process improvement, not as a 'carrot and stick' approach intended to punish departments for not meeting targets.

In fact it's a danger to put targets on outcomes. Are you sure you understand all the factors that may affect the outcome? If not, you risk rewarding the wrong behaviour, and managers 'gaming' the system to meet goals e.g. if I never answer my 'complaint' line, I can show zero complaints on my performance report!

So, what does work? First, you need an organizing framework i.e. a Logic Model or strategy map – that shows the relationship between what we put into the process (inputs), what we do (activities,outputs) and what we achieve (outcomes).

Second, you need a governance structure and communication strategy, that extends from policy development to planning to management to program delivery, to get the right performance information to the right people, to take action.

And third, you need to establish accountability for real results at the closest level possible to the work being done.

With these elements in place, you can build a performance based budget system that focuses on missions, goals, and objectives, that can explain why money is being spent, and how to allocate resources to achieve intended results.

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